Friday, September 24, 2010

Fannie Mae: a Whydunit

I'v e been distracted by other entertainments so I've paid only intermittent attention to the Krugman/Rajan debate over the question of how much blame for the meltdown should be meted out to Fannie and Freddie. I ha ve nothing new to offer on the numbers in the case. I do, however, want to say a word about motivation.

Here's the thing: it's clear that one way or another the GSE's were way too deep into the market for dodgy paper. But at least with Fannie, I think it is important to note that they were not driven by any principle of housing policy: it was solely a matter of money. These guys had lost traction with their accoutning scandals and were fighting desperately to regain market share so they could return to living like potentates as they had before their embarrassment. And FWIW, the hostility of other banks (with a big shout-out to the Wall Street Journal) weren't concerned about housing policy either. They were just envious of Fannie for walking off with all the swag. In other words, the real problem with Fannie was not some defect in government policy but the fact that it was acting way too much like one of those greedy and corrupt private banks.